Hong Kong

Primary sales surged 165% to 1,553 units.

The French bank joins DBS in relinquishing office spaces due to growing prices in Hong Kong.

Commercial property rents are getting closer to a trough.

This translates to approximately 1.65 million square feet of vacant space.

Total surrender space rose to about 1.77 million sq ft in February.

Vacancy pressure gradually eased in most core retail areas as many short-term leases were recorded.

Blame it on the high vacancy rates. Mass projects launched were generally well received during the quarter, owing to robust pent-up demand. For example, all the 769 units and over 95% of the 1,391 units launched at Pavilia Farm (Phase 1 & Phase 2 respectively) were sold. The project sits atop Tai Wai Station and is jointly developed by New World Development and MTRC. According to JLL, with uncertainty in the economic outlook and the fact that rental markets are typically slower towards year-end, leasing activity was quiet. The situation appeared to be more notable in the high-end segment as landlords were more willing to soften asking rents to attract tenants. Up to 4,800 private supply units in 1Q21 A total of 111 luxury units are expected to have received their occupation permits in 4Q20. Notable projects include 21 Borrett Road (Phase 2) by CK Asset in Mid-levels (50 units) and Grand Homm by Goldin Financial (18 unit) in Ho Man Tin. The government has earmarked three residential sites for sale by tender in 1Q21, including one each at The Peak, Kwun Tung and Kai Tak, capable of yielding 2,240 flats in total. Together with the supply from Package 6 of the Wong Chuk Hang Station project, and private development and redevelopment sources, land supply for private housing from the quarter is estimated to reach 4,800 units. Luxury capital values decline against weak demand With demand for luxury properties staying weak, more owners were willing to reduce prices, resulting in a drop of -2.4% q-o-q in luxury capital values in 4Q20, after dropping by a similar magnitude (-2.5%) in the previous quarter. In 2020, luxury capital values dropped -8.2% y-o-y in total. Amid the holiday season and limited expatriate arrivals, leasing momentum remained weak in 4Q20, with luxury rents falling by -3.8% q-o-q, after a -3.6% q-o-q drop in 3Q20. Outlook: Drop in capital values to slow amid low interest rate A potentially less tumultuous year in 2021 and the low interest rate environment are expected to support housing demand, especially in the mass segment. We expect transaction volume for luxury properties to pick up mildly, though still remain much lower than historic levels. Given a high vacancy level, luxury capital values are still expected to remain soft, dropping in the range of 5-10% in 2021. In view of ongoing border shutdown and corporates’ focus on cost saving, expat arrivals are likely to remain low and with their housing budgets tight in the near term. Luxury rents are expected to drop by 5-10% in 2021, in line with capital values.

Its occupancy rates in its Hong Kong and Singapore properties remained high due to steady demand.

More banks and corporates are cutting their real estate footprint.

New demand is likely to be tempered until China’s borders are fully reopened. Despite the overall property market being hampered by COVID-19 and Sino- US trade war, the performance of the industrial sector remained relatively resilient, with overall rents witnessing only modest declines. Colliers reveals that warehouses fell -5.6% YOY with factories falling -3.3% YOY in 2020. Tenants had a greater tendency to relocate for lower rents, while landlords were more flexible in offering incentives and longer rent-free periods to maintain occupancy. In 2021, Colliers expects to see the total export performance to recover from 2020’s low base, supported by the recovery of exports to China. In fact, total export growth returned in Q3 and Q4 2020, after experiencing six consecutive quarters of negative growth. Meanwhile, in December 2020 the Tuen Mun – Chap Lap Kok link opened, greatly enhancing logistics connectivity in the northwest New Territories. “We expect to see the Tuen Mun area capture new interests from both occupiers and investors. Overall, in 2021 we forecast warehouse rents to decline by 2.5% and prices by 3.0% YOY, as new demand may still be relatively limited until the border with China is fully reopened.”

High street retail rents declined by as much as 27.9% in 2020.

Annual net absorption was −1,769,900 sq feet in 2020.

Two Chinese Mainland financial companies leased an entire floor in Two IFC.

Transaction volume almost halved to USD 7.7b.

Analysts say cold storage investments are viable because of burgeoning demand underpinned by the pandemic.

Luxury volumes have been volatile recently with July’s buoyant mood quickly dissipating due to a third virus wave. Luxury volumes have been volatile over the past few months with the buoyant mood in July quickly dissipating due to a third wave of virus infections and heightened social tensions. According to Savills, total luxury volume (HK$20 million +) surged to 282 in July, the highest in 2020, before falling back to 153 in August. The combined number of transactions for the two months (435) was still slightly ahead of the 419 transactions completed in April and May, though. The sale of 37 Shouson Hill Road in Southside for HK$2.5 billion to Hang Lung Properties was the most significant deal of the quarter, with the developer planning to redevelop the former US consular staff quarters into super luxury detached houses, targeting completion in 2024. Elsewhere two other house sites were sold to investors / individuals eyeing redevelopment, reflecting a firm appetite for developable sites at the top end of the market. Though market sentiment was mixed at best, luxury prices on Hong Kong Island and in Kowloon declined marginally by 0.1% and 0.5% respectively in Q3, as only a handful of distressed assets changed hands. Here’s more from Savills: The New Territories market, in particular houses, continued to attract buyers, given the appeal of low density living, ample outdoor space and the availability of parking, and luxury prices rebounded for a second consecutive quarter by 2.6% as a result. A quick comparison of average house prices by district reveals the substantial price differential between the Peak (with an indicative price range of HK$55,000 to HK$105,000 per sq ft) compared with Sai Kung (where typical average prices range from HK$11,800 to HK$17,500 per sq ft), the latter almost one-fi fth of the former. This phenomenon adds to the appeal of New Territories houses to potential buyers, especially for those who did not need to commute to the CBD frequently. Mass market supported by secondary market revival The mass market was in a buoyant mood with reviving interest in the secondary market due partly to lower down payment requirements from Mortgage Insurance Programme. The secondary transaction volume totalled 25,327 over the first seven months in 2020, a 1.4% rebound from the same period last year. The primary market saw fewer transactions as developers held back project launches due to the uncertain environment, while some were more focused on clearing backlog units with more aggressive incentives. From 2016 to 2018, developers were aggressive in primary launches with the number of primary unit launches (averaging around 20,000 per annum) consistently higher than the number of units being sold (averaging around 17,000 per annum). 2019 saw this trend reverse for the first time and this remained the case over the first eight months of 2020 with only 6,500 primary units launched but more than 9,000 primary units sold, representing a change in launch strategies by developers over the past 18 months when market sentiment has become more subdued. Outlook The potential reintroduction of the vacancy tax could see further changes to primary launch strategies in the near future. Assuming the proposed vacancy tax to be effective from 2021 onwards, as many as 8,600 completed but not yet sold units would be subject to the 5% levy on sales price on an annual basis, which would most likely prompt developers to speed up sales of such units. Adding another 54,000 units under construction (construction which began in 2019 or before) but not yet sold or launched, the primary launch pipeline in 2021 could be substantial, in particular given the cautious launch programmes witnessed this year. Looking ahead, the full impact of COVID-19 may be felt towards the end of the year if the government tapers subsidies and we see more corporate layoffs pushing unemployment rates to new highs. The unemployment rate currently stands at 6.1%. With uncertain economic prospects and a volatile stock market, residential volumes and prices may have to endure a bumpy ride to the end of this year. Luxury apartment prices on Hong Kong Island have fallen by 8.6% from their previous peak in Q2/2019 and are expected to slip by a further 3% to 5% towards the end of this year given the uncertain environment. Looking into 2021, with economic growth expected to remain weak, unemployment expected to hit new highs and developers likely to accelerate launches, luxury prices may come under further pressure, possibly declining by another 5% to 10%. Low interest rates and ample liquidity will provide some market support, however. Difficult variables to predict include the containment of COVID-19, future US-China relations, and the possibility of resurgent social tensions.